IN THE ITAT DELHI BENCH ‘D’

Assistant Director of Income-tax, International Taxation, Dehradun

v.

Western Geco International Ltd.

Vimal Gandhi, President And R.C. Sharma, Accountant Member

IT Appeal Nos. 4847 to 4941 (Delhi) of 2007

[Assessment year 2006-07]

FEBRUARY 21, 2008

Section 234B, read with sections 208 and 209, of the Income-tax Act, 1961 - Interest, chargeable as - Assessment year 2006-07 - Whether a salaried employee cannot know that there had been short, wrong or no deduction of tax at source unless financial year is over and by time he would come to know about short recovery or no recovery of tax at source in his case, time for payment of advance tax would be over - Held, yes - Whether therefore, there is no question of payment of advance tax by an employee whose total income comprises of salary from which tax at source is to be deducted as per statutory provisions and, hence, there is no question of applying provisions of section 234B to such a person who is not liable to pay advance tax - Held, yes

Facts

Company ‘G’ was agent of many foreign nationals. It paid salary to different non-resident assessees and filed returns on their behalf. The assessees/employees only had salary income, which was subjected to deduction of tax at source. They claimed deduction under section 10(10CC) on account of tax paid by the employer on their salary, as per agreement. The Assessing Officer refused to allow said deduction and added tax paid on income through multiple grossing instead of single grossing. This led to additional liability and demand representing the difference between the ‘assessed tax’ and ‘tax deducted at source’ leading to levy of interest under section 234B for non-payment of advance tax. On appeal, the Commissioner (Appeals) held that the Assessing Officer was not right in levying interest under section 234B upon the assessees and, accordingly, deleted the same.

On revenue’s appeal :

Held

Having regard to provisions of section 191, an assessee has to pay tax, payable by him direct, if tax had not been deducted from his income. However, section 191 only talks of income-tax. It does not talk of payment of ‘advance tax’ or ‘interest’ for which there are separate provisions in the Act. Advance tax is payable by an assessee as per provisions of section 207. It is also to be paid in accordance with provisions of sections 208 to 219 on total income chargeable to tax in the financial year for the immediately following assessment year. It is payable on the current income. Section 208 further provides that advance tax is payable if such tax payable on the current income computed in accordance with provisions of Chapter XVII is Rs. 5,000 or more. So for computation of advance tax, one is to look to provision of section 209. Clause (d) of section 209(1) clearly provides that while computing advance tax, the amount of income-tax which is deductible or collectible at source, will be deducted from the advance tax payable. In other words, advance tax payable will be reduced by the amount of tax at source ‘deductible or collectible’. Therefore, when tax is deductible or collectible at source from salary which is the only source of income, no advance tax would be payable by such an employee. In the instant case, there was no dispute that total income of the assessee was subjected to deduction of tax at source under section 192. In other words, tax at source was deductible from the total income of the assessee. That is to say that assessee had no amount of advance tax payable, if tax at source deductible from the assessee’s salary was taken into account. The tax on his income in the financial year computed as per section 208 was less than Rs. 5,000. It was relevant to mention that it was not the tax actually paid or actually deducted, to be taken into account under section 208/209. In both the sections, word used is ‘tax payable’. Even otherwise advance tax is payable in the financial year on the current income. It cannot be paid after the close of the year. However, a salaried person, whose salary is subject to deduction of tax at source, cannot come to know of any short recovery or no recovery of tax at source till the close of the financial year in which tax is deductible. If the employer has not correctly deducted tax at source from salary in one month under section 192, the deficiency can be made good under sub-section (3) of section 192. Therefore, the employer can always make good deficiency in deduction of tax at source, within the financial year. So if in one month, there is short deduction of tax at source, the employer can make higher deduction in other months in the financial year and make good the short deduction. Therefore, a salaried employee would not know that there had been short, wrong or no deduction of tax at source unless the financial year is over. By the time he would come to know about short recovery or no recovery of tax at source in his case, the time for payment of advance tax would be over. He can then only file return of his total income and pay tax thereon. The employer in case of short recovery is liable to pay interest and penalty and not the employee. That is the Scheme of the Act. Therefore, there is no question of payment of advance tax by an employee whose total income comprises of salary from which tax at source is to be deducted as per statutory provisions. Further, there is no question of applying provisions of section 234B to such a person who is not liable to pay advance tax. [Para 10]

Thus, the assessees were not liable to pay advance tax, and, consequently, were also not liable to pay any interest under section 234B. [Para 12]